When I was growing up, I enjoyed playing Monopoly and particularly enjoyed handling the bank. At one point in my career, I worked for a bank. But until recently, I never thought in terms of being the bank. That's all changed when I discovered a person-to-person (P2P) Lending on an eBay-like website where people ("borrowers") post a request for an unsecured loan of up to $ 25,000 at a maximum interest rate they're willing to pay . Then other people, like me ("lenders"), place bids in a reverse Dutch auction, for the amount and rate they're willing to lend, usually for a piece of the loan (at least $ 50).
On one site, borrowers provide their annual income so a debt to income ratio can be determined and displayed. A credit check is run and a borrower's credit grade is also determined and displayed. The site has over 1,200 loans listed currently. They range from $ 5,000 at 4.75% interest for home remodeling (1 bid) to $ 3,000 at 29% interest to consolidate credit card debt (12 bids).
Lenders create a link to their bank account, transfer funds to the auction site, and begin placing bids. When a fully-funded listing ends, a single loan is created from bids with the lowest rates. The site automates much of the operation for the lender including withdrawal monthly payments from the borrower's bank account and distributing them proportionately to the lenders' accounts.
Not every loan request will get fully funded, but those that do have an opportunity to receive a loan at a rate that's potentially better than a number of other alternatives. Jim Bruene from Online Banking Report predicts that within five years the total market for person-to-person lending in the US could surpass 100,000 loans annually, worth more than $ 1 billion.
P2P Online Lending can benefit investors by allowing them to invest directly in other people and diversify their own investments. The site mentioned earlier reported "While 73.6% became lenders to achieve higher ROI than with alternative investments (an expected response), over 53% responded that the ability to help others while approaching a return was a driver in their decision to become a lender. "
If you're looking to diversify your investments beyond stocks, bonds, CDs and real estate, consider P2P Lending, help others, and be the bank.